Key points of investment:
China Shipbuilding Defense (600685) disclosed its 2023 annual report on March 28. In 2023, the company achieved total revenue of 16.146 billion yuan, a year-on-year increase of 26.19%; net profit to mother was 48.676 million yuan, a year-on-year decrease of 93.02%.
Excluding non-net profit, the shipbuilding business was basically flat, with a sharp increase of 67.95%. The company's 2023 annual report achieved operating income of 16.146 billion yuan, a year-on-year increase of 26.19%; net profit attributable to mother of 40.676 million yuan, a year-on-year decrease of 93.02%; net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss - 1,7639 million yuan, a year-on-year loss of 77.549 million yuan.
The main reason for the sharp decline in net profit due to the equity law during the reporting period was that the equity law confirmed investment income of the joint venture of 0.05 billion yuan, a year-on-year decrease of 628 million yuan. In 2022, the company's joint venture, Guangzhou Shipbuilding International confirmed compensation income of about 1.74 billion yuan for the second and third plots of Guangzhou Shipbuilding International's Liwan plant, and the company confirmed investment income of about 730 million yuan according to the shareholding ratio, and included this income as non-recurring profit and loss in the 2022 annual report.
By business in 2023, look at:
1: Shipbuilding achieved revenue of 13.234 billion yuan, up 67.95% year on year, accounting for 81.97% of total revenue; of these, special ship revenue was 8.035 billion yuan, up 65.03% year on year, accounting for 49.97% of total revenue; container ship revenue was 4.29 billion yuan, up 83.62% year on year, accounting for 26.57% of total revenue; bulk carrier revenue was 909 million, up 34.7% year on year, accounting for 5.63% of total revenue.
2: Steel structure engineering revenue was 1.342 billion yuan, down 12.54% year on year.
3: Ship repair revenue was 744 million yuan, down 60.7% year on year.
4: Offshore product revenue was 423 million yuan, a year-on-year decline of 60.66%.
5: The revenue of mechanical and electrical products and other products was 198 million, down 1.37% year on year.
The company made every effort to guarantee the delivery of shipbuilding orders. The shipbuilding business grew rapidly by 67.95%, and all other businesses experienced varying degrees of decline. The holding subsidiary (54.54% shareholding ratio) CSIC Huangpu Wenchong lost 345 million dollars in 2023.
The company's three major shipbuilding indicators improved in 2023, and new orders increased by 27.5%. In 2023, the Group continued to promote key tasks such as lean production, integrated information platform construction, management improvement and cost control to achieve steady improvement in shipbuilding efficiency and continuous optimization of operational quality and efficiency.
A total of 1.0831 million DWT were completed and delivered for 46 ships throughout the year, including multiple types of important defense equipment products, mass-built 1900TEU and 2,700 TEU container ships, 85,000 DWT bulk carriers, and key products such as offshore wind power conduit racks.
We achieved operating acceptance of 18.3 billion yuan throughout the year, an increase of 27.5% over the previous year. We received orders for a total of 44 new 12-type ships, exceeding the annual operating target.
The total contract price of the Group's handheld orders was about 55.76 billion yuan, of which the total contract price for handheld shipbuilding was about 53.73 billion yuan, including 110 ship products, totaling 3.4987 million dwt.
The gross margin of civil ships has increased markedly, and the profit inflection point is approaching
In 2023, the company's gross margin was 6.63%, down 0.23 percentage points year on year; net interest rate was 0.45%, down 5.1 percentage points year on year; after deducting non-net interest rate -0.01%, up 0.61 percentage points year on year. The main reason for the sharp decline in net interest rates is that there was a large amount of non-recurring profit and loss in the same period last year.
By business: The gross profit margin of the company's shipbuilding business was 6.15% in 2023, down 1.47 percentage points from the previous year.
Among them, the gross profit margin of container ships was 13.58%, up 3.05 percentage points from the previous year; the gross profit margin of special ships was 2.77%, down 4.91 percentage points from the previous year, and the gross profit margin of bulk carriers was 0.93%, up 3.77 percentage points from the previous year. The company's gross margin for civilian ships has increased significantly, but the gross margin for special ships has declined sharply.
The main reason for the sharp decline in the gross margin of special ships was that some of the products completed and delivered during the reporting period were still carried out during the previous period when steel prices were low and exchange rates were high. The gross profit contribution was low. At the same time, due to changes in ship type structure, the gross margin of some products declined.
The shipbuilding boom cycle continues, and there is plenty of room for repair, China Shipbuilding Defense is a large key shipbuilding enterprise under the China Shipbuilding Industry Group and the country's core military manufacturing enterprise. The holding subsidiary Huangpu Wenchong was founded in 1851, has a 172-year history of construction, and a military history of more than 130 years. It is the main construction base for domestic military ships, special engineering vessels, and marine engineering. China's largest and strongest production base for dredging engineering vessels and branch line container ships.
In 2023, the world's new shipbuilding market moved from recovery to stability, new ship prices reached new highs, major ship types gained balance, green transformation continued to advance, and the shipbuilding industry maintained a good development trend. In terms of new orders, the number of new global orders received in 2023 was 43.1 million revised total tons and 106.91 million dwt, up 0.5% and 27.9% year on year; in terms of completed deliveries, the world delivered 34.85 million modified gross tons and 84.25 million dwt, up 16.2% year on year, respectively; in terms of handheld orders, global handheld orders were 121 million modified total tons and 254 million dwt, up 14.3% and 17.6% year over year.
In 2023, new ship prices continued to rise due to factors such as a sharp increase in global inflation, a rapid rise in labor costs, rising costs of building green and environmentally friendly ships, and sufficient orders from shipyards.
As of December 2023, the Clarkson New Shipbuilding Price Index was 178 points, up 10.2% year over year, making it the highest ship price index since December 2008.
In 2023, China's shipbuilding completion volume, new orders, and handheld orders accounted for 50.2%, 66.6%, and 55% of the world's total in terms of DWT, respectively, up 2.9, 16.8, and 6 percentage points, respectively, from 2022, and their shares all exceeded 50% for the first time.
The booming shipping industry continues. New ship prices continue to rise, and the three major indicators of shipbuilding continue to grow at a high rate. Current industry supply is unable to expand rapidly, and handheld orders are delivered until 2028, which means that the recovery in this round will be very sustainable and strong. New shipbuilding prices have risen, and the profit margin in the shipbuilding industry continues to widen due to the low price of shipbuilding boards, providing better profit margins for shipbuilding companies' performance recovery.
Shipbuilding is a long-term industry, and the sustainability and strength brought about by the long-term recovery is worth looking forward to. Since last year's Q3 earnings report, some listed shipbuilding companies have successively reached a break-even point, and the inflection point of profit has been reached. It is expected that starting this year, shipbuilders will enter a period of performance recovery, and there is plenty of room for performance recovery.
From January to January 2024, all three indicators of shipbuilding showed a sharp increase. Among them, shipbuilding completion increased by 95.4%, indicating a clear breakthrough in the shipbuilding industry's production capacity bottleneck. The shipbuilding completion situation is expected to increase dramatically this year, driving the shipbuilding sector's performance to accelerate. As a core asset of the shipbuilding industry, the company will fully benefit from the shipbuilding industry's cyclical recovery.
Profit forecasting and valuation
The company is a core shipbuilding asset under the China Shipbuilding Industry Group. It has fully benefited from the good boom cycle of the shipbuilding industry cycle of sharp increases in volume and price, and is expected to usher in profit recovery in the next few years. We forecast that the company's revenue forecasts for 2024 to 2026 are 18.975 billion, 21.991 billion, and 24.512 billion, respectively, and the net profit forecast for 2024-2026 is 1,313 billion, 1,732 billion, and 2.88 billion, respectively. The corresponding PE is 27.76X, 21.05X, and 16.66X, respectively. The industry boom cycle continues to rise, and the company has plenty of room for profit recovery, and continues to give the company a “buy” rating.
Risk warning: 1: Shipbuilding industry demand falls short of expectations; 2: Company order delivery falls short of expectations; 3: Prices of raw materials fluctuate greatly; 4: Industry competition intensifies and gross margin falls.